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New Commission President Vows to Put Environment First: Carbon Tariffs on Imports a Likelihood

On 16 July 2019, Ursula von der Leyen was elected as the first female president of the European Commission. She won the support of 383 members of the European Parliament, by promising a European ‘Green Deal’ and focusing on the environment. This is relevant to Hong Kong traders, as her focus may well be fleshed out into future legislation which will affect trade in consumer goods. Ms. von der Leyen’s plans include, amongst others, a carbon border tax, a zero-pollution future and improvements to the EU emission trading system. Although critics remain sceptical about her commitment to the environment, her plans are ambitious and capture the current political climate in Europe.

Doubts rose amongst European Parliament members (MEPs) when the European Council proposed Ursula von der Leyen as the candidate for Commission President, since she was not one of the so-called Spitzenkandidaten, who are chosen by the European political parties. Spitzenkandidat is German for lead candidate, and in an EU context refers to a European political party's lead candidate for the European Commission President. These parties are groupings at the European level, comprising politically similar parties from different nations. The parties would normally choose a candidate to be the face of their party, and the potential future European Commission President.

However, in the days following the European Council’s decision, she presented a bold vision for a greener Europe and called for significant climate and environmental action over the next five years. This convinced the Parliament, although not, ironically, the Green Party, to elect her as President of the European Commission.

Her policy ideas are set out in a 24-page document titled: ‘A Union that strives for more: My agenda for Europe’. The first point addressed is the European Green Deal, ensuring that Europe becomes the world’s first climate neutral continent. Von der Leyen has promised to introduce a Green Deal within the first 100 days of office. She presented five key elements of the Green Deal.

First, the Emissions Trading System will be extended to cover the maritime sector and reduce the free allowances allocated to airlines over time. To complement this work, and to ensure that European companies can compete on a level playing field, she will introduce a Carbon Border Tax to avoid carbon leakage. Such tax may well impact on goods introduced into the EU from countries like mainland China. The main purpose of adjusting for carbon costs at the border is to prevent the relocation of carbon-intensive production to non-EU countries, a problem known as “carbon leakage”. When firms outsource production to avoid carbon costs, their emissions occur abroad instead, reducing the effectiveness of EU climate policy. To tackle such leakage, the EU currently hands out free allowances to trade-exposed industries under its emissions trading system (ETS). Von der Leyen’s plans could include importers in the EU ETS. French president Emmanuel Macron has described such a measure as “indispensable”, and the French government has, it is reported, already put forward concrete proposals in the past to include importers in the EU ETS.

Border carbon adjustments are seen as attractive, as they may be moulded into a tax or tariff on imports and/or rebates for exports, and have an edge over the current system of free allocation. While the EU ETS may have proved to be a reasonable tool until now, it does not tackle the fact that imports can undermine the overall EU climate protection effort.

Second, von der Leyen wants Europe to be the world leader in the circular economy and clean technologies.

Third, she intends to put forward a strategy for green financing and a Sustainable Europe Investment Plan, which will support €1 trillion of investment over the next decade in every corner of the EU.

Fourth, she wants the EU to lead international negotiations to increase the level of commitment of other major emitters by 2021.

In addition, according to her, more efforts will be directed towards preserving Europe’s natural environment, including a Biodiversity Strategy, a New Circular Economy Action Plan and a “Farm to Fork Strategy” on sustainable food. To accomplish these plans, she promised to end unanimous decision-making on climate and energy issues – a practice that allows rebel Member States to block EU action.

After her election, von der Leyen reaffirmed her campaign promises regarding the environment, saying “The worst-case scenario will come about if we do not act with determination, [against] rapidly intensifying climate change with all its consequences. The clock is ticking, and we have to act.”

Besides the environment, the President-elect will have to deal with another major topic in EU politics: Brexit. Although von der Leyen did not go into detail about her Brexit plans, two of her viewpoints are clear. First, she is in favour of a further extension to reach a deal with the United Kingdom, stating “Should more time be required, I will support a further extension if good reasons are provided.”

Second, she supports the current Withdrawal agreement, asserting that the “Withdrawal Agreement negotiated with the United Kingdom is the best and only deal possible for an orderly withdrawal.” She later nuanced her previous statement and said that the Withdrawal Agreement “would remain the basis of any future talks”. In any case, Brexit without a deal is unacceptable to her: “A Brexit without a deal comes with massively negative consequences for both sides, not to mention what it means for Ireland. That’s why we need to do everything to strive for an orderly Brexit.”

Content provided by Picture: HKTDC Research
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